How to interview other Airbnb hosts before investing in a short term rental

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How to generate insights beyond AirDna.

To determine the best neighborhoods for investing in short term rentals, we utilized software that considered the expected Gross Rental Income (GRI) and average property price. GRI can be easily calculated using tools like Airdna, Alltherooms, and Mashvisor. Our software analyzed this data to prioritize which neighborhoods would provide the best return on investment. Additionally, we sampled 10 properties in Zillow or a similar website to calculate the average property price per property. By combining these factors, we were able to rank neighborhoods by a “GRI to Price”:

Once you have selected one neighborhood with strong tourist demand and reasonable purchase prices, the next step is to search on Airbnb for high-performing properties and to interview their host to understand how to compete in this market. When researching the Palermo market I focused on interviewing hosts that tuned properties with a 4.9-star review score or more that have been booked one month in advance and get multiple reviews per month. The key here is to select hosts that run their own property and to avoid professional property managers as they are less inclined to share information. You can sort out property managers by clicking on the host information on Airbnb and verifying that this host only manages this one property.

Does interviewing the host require traveling to the city? No, it doesn’t. I would rent the properties for one or two nights and have a phone conversation with the host. As of today, I do not stay at every place we book. My preferred approach is to call the hosts and mention that I’ve noticed that his property is outperforming other listings in the area and that I’m looking to purchase a property in the area and wanted to ask him for a few tips. After a 10 or 15-minute conversation, you will have a clear understanding of the guest profile that rents there and what makes the property outperform others.

Establishing a relationship based on empathy with other hosts in the area can take you a long way. It will give you a clear understanding of your ideal guest profile, including their needs and preferences. For the first property we purchased in Argentina, we interacted with six hosts and established a clear guest profile. Our ideal guest was typically a couple between 25 and 40 years old, from neighboring countries like Brazil and Chile. They were staying in Buenos Aires for three to four nights, and were motivated by the world-renowned restaurants in Palermo at night. Additionally, they preferred staying in the neighborhood due to its proximity to the Linea D subway line, which connects to popular tourist attractions in downtown Buenos Aires.

After conducting these interviews we concluded that to ensure higher than average occupancy rates is for your apartment to be located within eight blocks of the metro because this guest profile doesn’t rent a car and prefers to take the metro to discover the city.

Interviews have been the single most important element when trying to gain insights about each neighborhood. When setting up, our first syndicate to use other people’s money to invest in short term rentals we continue to rely on the experience of other hosts who know how to compete in a market where we know little or nothing about. The hospitality industry and short term rentals presents an advantage to other asset classes for an inquisitive investor, as it’s normal for hosts to speak english and engage in a conversation with you.

Now that you have selected a neighborhood with good fundamentals for investing and have interviewed successful hosts from that area, it’s time to find the right property to purchase. You should clearly define where in the neighborhood to search for properties and what makes that property stand out on Airbnb. The best advice I can give you is that once you decide where to look for your property and what characteristics that property should have, do not stray from that. Each time you tradeoff any of those elements, your probability of gaining full occupancy decreases.

After conducting a thorough analysis and a round of interviews, you should have a clear understanding of the customer persona you are serving and be able to delimit your search area for apartments. By gaining these insights, you will be able to make more informed decisions about where and what type of property to purchase, which will help minimize mistakes that could potentially damage your occupancy rates in the long term. It is important to understand the needs and preferences of your target audience, as this will help you tailor your marketing efforts and provide a better customer experience. Armed with this knowledge, you can confidently invest in properties that meet the specific needs and desires of your target market, ultimately leading to higher occupancy rates and increased profitability.

Investing in Short-Term Rentals Overseas: Why Argentina Is Our First Choice.

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Investing in short term rentals overseas. Why do we prefer Argentina as our target market?

Finding real estate opportunities that are mispriced can be challenging, but one way to do so is by looking for markets where financing has been shut off. In the United States, for instance, financing was cut off during the mortgage crisis in 2008, resulting in a drop in property prices below their actual value. When financing options such as mortgages are limited, demand for real estate decreases, making it easier to find opportunities.

Currently, there are three international markets where financing is not available in 2023: Argentina, Venezuela, and Ukraine. Ukraine is undergoing a military conflict, and Venezuela has been under socialist dictatorship, which has resorted to printing money to cover the state’s financial deficit. In both cases, it is uncertain when these conditions will change.

Argentina, however, is a stable democracy with an upcoming election in October 2024 that is expected to end 18 years of left-wing parties ruling the country. As of March 2023, the left is projected to gather less than 30% of the votes. Once a fiscally responsible government takes control, it is likely that inflation will be tackled, and mortgages will return to normal. However, there is no way of knowing when this will happen, although it is certain that financing will be reintroduced at some point between 2023 and 2028.

Argentina has already experienced the reintroduction of financing in 2017, which resulted in a 40% growth in demand for condos and apartments, leading to a 19% increase in prices in just 18 months. Therefore, it is likely that property prices in Argentina, which are currently historically low, will undergo a significant correction within the next five years, assuming all other factors remain constant.

Limited financing presents an opportunity for real estate investors to find mispriced properties, particularly in stable democracies like Argentina. While the reintroduction of financing may lead to a correction in prices, investors who purchase now could potentially realize significant gains in the future.

In addition to the previously mentioned factors, Argentine properties are transacted in USD, making it easier for US investors to invest in the country. The real estate sector as a whole relies on the USD for every transaction, which limits currency exchange risks for foreign investors when buying and selling properties. Our recommendation for US investors is to incorporate their LLC or corporation as a foreign entity in Argentina or to purchase the property directly as a physical person to further minimize risks.

When it comes to cash flow, short-term rentals through Airbnb are the best alternative for foreign investors to minimize currency exchange risks. By listing a property on Airbnb, investors can set a daily price in USD and receive their payments directly in their US bank account. This approach allows investors to enjoy rental income while minimizing the risks associated with currency exchange.

The current market conditions in Argentina present many investment opportunities with high appreciation potential. For example, brand new studio apartments (440 sq ft) in Buenos Aires city can be purchased for under $70,000 through the local MLS. At Abroadster, we prefer studio apartments as an asset class because they have the highest occupancy rates on Airbnb overall. However, not all locations for studio apartments will perform well, so it is essential to purchase properties that have high short-term rental potential and follow best practices to maximize returns on Airbnb.

Historically, the neighborhoods of Palermo, Recoleta, Buenos Aires Centro, and Retiro have had the highest tourist demand, making them ideal locations to invest in. At Abroadster, we take this approach to investment and focus on markets where access to financing is not possible to optimize appreciation. We source properties according to their short-term rental potential and purchase price, ensuring that our strategy to invest in international markets with limited financing is successful.

The net income you can expect from a 440 sq ft studio apartment in Argentina varies between 9 to 14k USD. For a studio apartment priced at $55k USD (that’s our sweet spot price), cap rates should be 8%-13%. A moderate appreciation percentage to adjust your projections should be 4.5%. With this in mind, the Internal Rate of Return (IRR) for a project of this sort should be over 11%.

In conclusion, American investors can optimize their appreciation potential and cash flow while managing currency exchange risk by following the strategies outlined in this article. By investing in Argentina’s real estate market, incorporating their LLC or corporation as a foreign entity or purchasing property directly as a physical person, and renting properties as a short-term rental on Airbnb, they can take advantage of historically low prices and high occupancy rates. However, it’s important to source properties that have strong short-term rental potential and purchase prices that align with the projected cap rates and appreciation rates

Tax breaks for your overseas short term rentals.

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To operate your Airbnb Short Term Rentals in a new country, it is necessary to register as a legal entity or an individual in that jurisdiction first.

If you are making a one-time investment or investing your own capital directly, you may consider registering as a foreign natural person and obtaining a local ITIN (Individual Taxpayer Identification Number). As a US citizen, the assets you own in foreign jurisdictions are not subject to legal rights or jurisdiction outside of the US, making it less crucial to operate through a separate legal system. However, if you own an LLC or different entity type to manage your real estate investment you may prefer to incorporate this company as foreign entity in the local jurisdiction to eliminate currency exchange risk.

When I set up my first fund to purchase short term rentals in Argentina, we decided to incorporate our Series LLC as foreign entity. To incorporate the company there we had to hire a local attorney. Not speaking the language and not having a physical presence in that country should not be a problem. I have covered a number of the best practices to find the right legal advisor in foreign country [LINK].

Taxation for capital gains and dividends overseas

When you sell a property that you own overseas, any capital gains from the sale will be subject to US taxation. The tax rate on these capital gains can vary, depending on your individual tax circumstances, ranging from 0% to 15%. Additionally, any rental income you receive from a property overseas must also be reported for US tax purposes.

Both income tax paid overseas for the capital earning and rental income can be used as a tax break. Income tax paid to the foreign can either be deducted or applied as a tax credit when filing your taxes in the US. You should file Form 1116 to claim the foreign tax credit if you are an individual, estate, or trust, and you paid or accrued certain foreign taxes to a foreign country.

The credit or itemized deduction you are able to take if you paid or accrued foreign taxes to a foreign country if taken as a deduction, foreign income taxes reduce your U.S. taxable income. Taken as a credit, foreign income taxes reduce your U.S. tax liability on a dollar to dollar basis. IRS 514 publication discusses when to use to apply a tax credit or itemized deduction, to minimize taxes to be paid.

Note that when calculating that the foreign source income tax credits are calculated up to the rates of U.S. tax on that same income. If the tax income rates applied by the foreign country surpass the rates applied U.S. tax on that same income, that amount will be a loss.

We advise you to consult with your tax specialist when preparing these forms to apply your tax breaks correctly. You should note that taxes paid over.